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The Effect of Oil Income on Real Exchange Rate in Iranian Economy

Author

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  • Adibeh Savari
  • Hassan Farazmand
  • Mehdi Basirat

Abstract

This paper investigates the effect of oil income on real exchange rate defined in Iranian economy from 1981 to 2012. This study uses Unit Root Tests, Cointegration techniques, Engle-Granger test, Vector Error Correction Model (VECM). The main findings of this paper are: (i) long run relationship exists between the oil income and Real Exchange Rate (REXR). (ii) The real exchange rate is an important variable to the oil income and oil price, and devaluation will improve the income growth rate of Iran in the long run. (iii) Unilateral causality is found among the variables of the model. As implication, in order to achieve the desired effects on oil income, Iran should depend on policy that focusing on the variable of real exchange rate. The results show that there is a long run co-integration relation between oil income and real exchange rate.

Suggested Citation

  • Adibeh Savari & Hassan Farazmand & Mehdi Basirat, 2014. "The Effect of Oil Income on Real Exchange Rate in Iranian Economy," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(11), pages 1564-1572.
    • Handle: RePEc:asi:aeafrj:v:4:y:2014:i:11:p:1564-1572:id:1290
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